Analysts at JD Power Automotive Forecasting have told just-auto of the possibility of a squeeze in demand and fall to automotive production in Europe later this year and in 2011 due to the risk of a double-dip or 'W-shaped' economic recession.

Their latest analysis suggests that 2010 is turning out to be better than expected, with 2010 European light vehicle build projected at 18.25m units, up 9.2% on the previous year. Exports out of Europe and the need to build inventory have been positives for vehicle build, but the forecasters say the next four quarters will fall back year-on-year.

They warn that while 2010 has so far been slightly better than expected, fiscal tightening measures across Europe suggest that any scope for improving market conditions in 2011 will be severely limited.

“There is some uncertainty about how tight things will get on the economic growth side,” concedes JD Power analyst Pete Kelly.

“And that is leading consensus economic forecasters to show only a tepid recovery path for the European economy, with the fiscal squeeze in the background being of uncertain magnitude. Very few macro forecasters want to call the double-dip yet,” he says.

“Indeed, there has been some be tter than expected news for the German economy this year, with the weak euro helping to lift manufacturing and unemployment actually falling. The German car market, though well down on the exceptional scrappage boosted market of last year, could be close to 3m units this year, with plenty of market support coming from manufacturer discounting.

“However, the uncertainties become more significant as we get towards the end of the year and into 2011 when the fiscal squeeze starts to bite across Europe and consumer confidence is negatively impacted.”

Analyst Arthur Maher adds that the publicity over planned public spending cutbacks will also be impacting decision-making on big-ticket items like cars. “In the UK, for example, the new government's ambitious sounding spending cutbacks have made big headlines. If you work in the public sector you may well conclude that now is not the time to make the financial commitment to buying a new car.”

JD Power is currently forecasting that the West European car market will fall back by 5% to 12.95m units in 2010, with a further dip of 2.5% to 12.6m units in 2011.

Maher warns that in an alternative double-dip scenario, European light vehicle production this year might grow by just 5.5% rather than the 9.2% currently forecast.

“This potentially would imply a year-on-year build reduction of 15% in the fourth quarter. And continuing this weaker economic scenario into 2011 would see European light vehicle build fall back to 17m units – a sizeable drop of 8% on this year,” he says.

Maher notes that the premium makers such as Mercedes-Benz and BMW have been adding production into summer schedules as demand for models like the new E-class has picked up above expectations.

“We have perhaps seen a better than expected market and industry performance this year,” he says.

“But the whole industry is waiting to see how demand shapes up in Europe and North America later this year and into 2011. The economic backdrop certainly does not look too favourable in Europe, but we have yet to see how severe the fiscal squeeze will really be and how the real economy is affected. At the very least, the strong positives that have sharply lifted production schedules so far this year will be on the wane.”